Goldman Sachs raises S&P 500 target on strong tech earnings

Goldman Sachs has raised its S&P 500 Index (.SPX) year-end goal to 5,600 from 5,200. This upgrade is due to strong profit growth from five mega-cap US technology corporations, as well as an improvement in the fair value price-to-earnings (P/E) ratio multiple.

Tech giants fuel market rally

The significant rise of tech giants such as Microsoft, Nvidia, Google, Amazon.com, and Meta Platforms has fuelled this adjustment. Collectively, these companies have increased by 45 per cent, accounting for 25 per cent of the S&P 500's equity value, according to a note released after the market closed on Friday.

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"The drivers of the rally include upward revisions to consensus 2024 earnings estimates for these same tech companies, and valuation expansion stemming from increased investor enthusiasm about artificial intelligence (AI)," said the analysts.

Upside potential and market dynamics

The new objective of 5,600 represents a 3.1 per cent increase from the index's previous level of 5,431.60. Goldman Sachs expects stable real rates by year-end, supported by solid profit growth and a 15x P/E ratio for the equal-weight S&P 500 Index.

Election year volatility

Goldman Sachs analysts have identified the approaching US presidential election as a significant risk factor for the S&P 500. The election is scheduled for November, and the brokerage observes that index volatility often surges before the election but then subsides, frequently culminating in a market rebound to higher levels.

(With inputs from Agencies)